VIC Creditor demands payment from Discharged Bankrupt

[EDDO]

Hi
I became bankrupt in 2016 and was discharged in 2019. I recently became a director of a company. A supplier who supplied a previous company has demanded payment or they will not supply this company even if I pay cash. I rang AFSA and they say "tough", I asked Google, and it seems that everywhere else in the world this is illegal. So what is the situation in Australia? Thanks

 

[Nighthelyn]

Dear Eddo,

Unfortunately “tough” is probably correct. If the supplier tries to pursue you for debt before the bankruptcy, do not pay is all. However, there is no law against someone who refuse to trade with a former bankrupt, which is not recognised as a form of discrimination.

If it makes you feel better, I checked the law in US, UK, China, EU - no none of these countries would consider refusal of service to a former bankrupt to be a valid form of discrimination.

I have a lot of respect for people who get out of bankruptcy. I have seen lots of business owners who became successful after some form of insolvency. Find another supplier. This one doesn’t deserve your business.

Good luck!
-Nighthelyn

 

[EDDO]

I am aware of the right for a supplier to refuse to deal (except if this is discriminating against human rights). My question was based upon the demand for the repayment of debt that existed prior to the bankruptcy to be able to trade with this supplier. In the US, UK and Europe it is illegal to demand payment of this debt. I believe it would be the same in Australia. The supplier can reject my business but he cannot blackmail me.

 

[Docupedia]

Chasing someone for payment of a debt released under bankruptcy is unlawful - that’s uncontroversial. In the eyes of the law you’re released from the obligation to pay the debt.

However, that doesn’t translate to ‘forgiveness’ of the debt. The inverted commas are to signify that I don’t mean forgiveness in the legal sense, but rather in the more general sense of ‘If you say sorry, I’ll forgive you’.

Bankruptcy is a mechanism of last resort (at least by design in my opinion, although practise would appear to show otherwise). Instead of debtor’s goal, or suffering under repayment plans with no realistic hope of satisfying over time, the law created the concept of bankruptcy as a way to reboot yourself financially.

While it helps the bankrupt, what it doesn’t do is assist the creditor - aside from a forced liquidation of the debtor’s estate which, really, is usually useless unless the debtor is a crash strapped, highly capitalised person with significant assets to realise. Some people may be under the preconception that the government pays out the debts - they do not. While that comment may be laughable, I add it from personal experience. I have dealt with a person who went bankrupt owing a business money, came back post-bankruptcy, and was genuinely surprised the business didn’t want to deal with them; they were shocked to find out the debt wasn’t paid out when they went bankrupt.

So that it is clear, the creditor loses out. It’s entirely possible, and often happens at the corporate insolvency level (or bankruptcy for companies, in simple terms), that one insolvency can trigger a resulting wave because suppliers who can’t get paid on their usual terms face default on their ongoing obligations and have to bow out.

So, while the law says that the creditor cannot enforce the debt - why would you expect them to happily deal with you? I know you said on a cash basis, but it sounds like they’ve taken the situation personally and want nothing to do with you. That loss they endured due to your bankruptcy is obviously significant enough in their mind to warrant refusing to deal with you. That’s their prerogative.

If that doesn’t make sense, think of it this way: You’re at someone’s house and drop a plate, smashing it on the floor. You say sorry. Does that fix the plate? Does it clean up the mess? Of course not. While you’re under no obligation to replace the plate or fix it, the homeowner is under no obligation to allow you to come back (even if you agree to only use the paper plates).

 

[Tim W]

Let's be clear - he's not blackmailing you.

While can't enforce (in the legal sense) payment of the historic debt (that was dealt with by the bankruptcy),
he can certainly refuse to do any new and/or further business with you.

Last time I heard of a case like this,
the board was trying to sack the discharged bankrupt
so that the intended supplier would then go on to supply them.
As in "We're happy to supply you, but not if it involves working with that guy."

(In the end, they couldn't sack him, because the discharged bankrupt was also a shareholder and a Director)

 

[EDDO]

As I say, I do know that we can choose (in most cases) with whom we do business, but I believe that, the "pay me $25,000 and I will supply you", is illegal.

So to be clear... if a supplier says "pay me what you owed before you were bankrupt, or I won't do business with you" (I have this in writing), is that legal? That is my only question.

Thanks

 

[PosComs]

As I say, I do know that we can choose (in most cases) with whom we do business, but I believe that, the "pay me $25,000 and I will supply you", is illegal.

So to be clear... if a supplier says "pay me what you owed before you were bankrupt, or I won't do business with you" (I have this in writing), is that legal? That is my only question.

Thanks

Where to go for consumer help

Several agencies provide advice, dispute resolution and small claims legal services. There are other regulators and government agencies that can provide information and assistance on matters related to different sectors.

www.accc.gov.au

contact staff and do some research if you really need to go through this business

 

[Docupedia]

I don’t see why it wouldn’t be legal. It doesn’t appear to be discrimination on the basis of any attribute that is restricted by law (e.g. sex, race, age, religion). You can’t legally enforce payment, but they’re not attempting to do that. It doesn’t appear to be a provider that may have a social or legislated requirement to provide service - such as an electricity provider.

This sounds personal, and borne out of being stung for $25,000. That apparently either hurt them significantly economically, emotionally, or both. I think I’d be pretty upset in their place - I know losing $25,000 would severely affect my business finances and my personal ones.

Let me share something personal to maybe help explain the mindset. A few years back one of my businesses was partnered with a builder to develop some adjoining house blocks and sell them. We’d done a couple, turned that over into a couple more, and so on. We held the title, luckily. Then, out of the blue, the builder goes insolvent and he declares bankruptcy personally. No notice or inkling given. It wasn’t our project that did it, but another part of his business. We were left with two unfinished houses. He’d received progress draws under finance - gone. Materials - gone. Subcontractors - gone.

I never heard from the builder, then or after. He apparently spoke to my brother at some point and said he felt so much better, and that going bankrupt was the best thing he ever did. He got growled at that that might be the case, but we were left holding his stinking mess. He slunk away with his tail between his legs.

It took us about 18 months to get through the insurance claim. It didn’t cover us for everything. We had to scramble to get things done. 18 months where we couldn’t work on the site led to degradation. Finishings had to be downgraded (the houses were in an upmarket area, and planned to be premium). Then there were the things the insurance didn’t cover, like landscaping and driveway (I think, from memory). Plus, the tradies we knew - from connection with the builder - lumped us in with him, and refused to work on the site. They wanted to be paid what they were owed too. Some we managed to convince, others we couldn’t.

We eventually managed to finish and sell the houses. All up we broke even - except for the extra 18 months of bank interest we had to wear. It took an insane amount of work, pleading, cajoling, and financial input from other business areas. Without all of that, we might have gone under too.

The point of all this is: If that builder came back to me today and said he’d pay cash, he wouldn’t even get to finish his sentence before he’d be out the door. If he compensated for the losses incurred, he might get to come back and pay cash but he wouldn’t be dealing with me.

 

[Tim W]

He's asking you to pay a debt that doesn't exist (that is, no longer exists).
That's it.

He is not acting unlawfully by declining to do further business with you,
nor by declining to do any (new, or further) trade
with any business in which you are a participant.

Let's be clear - just as he cannot enforce the non-existent debt,
you have no enforceable right to do business with him.

Going only by what you have said above,
missing facts missing, and with all the unstated ifs, buts, maybes, unlesses, and exceptions not allowed for,
unless you can show gross abuse of market power, it looks like you have nothing.